Currency markets are witnessing the U.S. dollar’s most substantial monthly climb since July, as ongoing Middle Eastern conflicts send oil prices soaring and heighten concerns about a potential worldwide economic downturn.
The greenback expanded its gains across most currency pairs overnight Tuesday, with the notable exception of the Japanese yen, where renewed intervention warnings from Tokyo officials have made traders cautious about pushing the yen beyond 160 per dollar.
Japan’s currency, which reached its lowest point since July 2024 just one day prior, was trading at 159.81 during Tuesday’s Asian session, marking a roughly 2.4% monthly decline due to Japan’s vulnerability to rapidly climbing energy costs. The yen showed minimal reaction to data revealing a slight deceleration in Tokyo’s inflation rate this month.
European currency struggled as the euro dropped 0.3% overnight and appears set for approximately a 3% monthly decline, while both Australian and New Zealand dollars tumbled to their lowest levels in several months.
The Australian currency, which had maintained relative stability for most of March, began showing significant weakness in recent trading sessions as market attention shifted from inflation concerns to global economic growth worries.
Australia’s dollar reached a two-month bottom of $0.6834 overnight before recovering slightly to $0.6844 during Asian morning hours. New Zealand’s currency has similarly deteriorated, hitting a four-month low of 57 cents on Monday and trading near $0.5716 subsequently.
South Korea’s won dropped to its weakest position since 2009.
The U.S. dollar index reached its highest level since May of last year on Monday at 100.61, representing a 2.9% gain throughout March and marking the steepest monthly increase since the previous July.
President Donald Trump issued a warning Monday that the United States would destroy Iran’s energy facilities and oil infrastructure if Tehran fails to keep the Strait of Hormuz open, following Iran’s dismissal of U.S. peace proposals as “unrealistic” and its missile attacks on Israel.
Kuwait reported Tuesday that an Iranian strike hit a fully-loaded Kuwaiti oil tanker while it was docked at Dubai, according to Kuwait’s state news agency KUNA, causing oil prices to climb higher.
“Barring any clear, conciliatory messages from the Iranian side, it is hard to see the dollar handing back this month’s gains anytime soon,” said Chris Turner, ING’s global head of markets.
Federal Reserve Chairman Jerome Powell downplayed the possibility of immediate interest rate increases on Monday, reinforcing the U.S. central bank’s cautious stance and stating that inflation expectations appear stable beyond the near term.
While Powell’s comments drove short-term bond yields down and eliminated market expectations for any U.S. rate hikes this year, they failed to significantly weaken the dollar, which typically benefits from safe-haven demand when global growth prospects appear dim.
Traditional safe-haven assets including bonds and gold have both underperformed since the conflict began, and with the yen struggling to attract investors, warnings from the Swiss National Bank about combating currency strength have deterred investors from using the Swiss franc as a refuge.
The dollar has gained nearly 4% against the franc this month, reaching 0.80 francs. European inflation data and Chinese manufacturing surveys are scheduled for release later in the trading session.
